The second hand made its agonizingly deliberate sweep. All eyes were locked to it. Ever so slowly it erased first the seconds, and then the minutes, on the plodding march to 4:45.

The workers sat, bundled in their winter hats and coats, their belongings at their feet, with their heads raised to it as in silent, patient prayer to a powerful god.

Along about 4:35 they had begun to put away their work and prepare for departure. Years of daily practice had made them efficient. Most were done well before 4:40, leaving nothing to do but wait. There they’d sit, staring at the big clock that hung high on the bullpen wall.

When that second hand passed 12, marking precisely 4:45, it was as if a giant vacuum had been attached to the door and switched on. By 4:45:10 the place was empty.

I stayed till 4:50. I was widely viewed as the hardest working person there.

This was my first professional job out of college. It was with a small publishing company in Chicago that had been started in the 19th century. Its work rules were right out of the 19th century, too.

Most of the staff worked in a large open windowless bullpen. Offices lined the outside of this room, and those got the windows. As the advertising manager for one of the two magazines we published, I was fortunate enough to have one of those offices, which I shared with one of the two people who reported to me.

Work started at precisely 8am. We were allowed a 20 minute break in the morning and another in the afternoon. My pal Dennis worked in the shipping department. Each morning around 10, we’d take the elevator down and walk across the street to the local cafe for coffee and sweet rolls.

That elevator was manned by an elevator operator. He’d manually open and close the elevator doors and then sit on a little stool while he pressed the buttons to go up or down. He’d had the job for decades. Same building. Same elevator. Up and down.

My boss, Carl, was an older gentleman, president of the company and a very nice man. Sometimes he would join us on break. It didn’t take long to figure out that if we talked about anything we wanted for the first 15 minutes and then got Carl talking about the “good old days” in the last five, well that 20 minute break could easily stretch into an hour or more.

When you leave and return with the president of the company, nobody says anything about your 20 minute break now being 60.

Quitting time was 4:45 in the afternoon. Come what may, you didn’t dare leave a moment before. With rules like that, clocks have god-like power.

Lest you think this was a only relic of the dark ages, here’s another more recent story. Again with a small publishing company dating back to the 19th century.

This was twenty years later, in 1995, and after being heavily recruited, I had accepted a job as publisher.

My first day one of my fellow publishers, Denise, invited me to lunch. We walked across the street to a local cafe at around noon. We had an great conversation filled with useful information that proved helpful in my efforts to hit the ground running. We returned around 2 pm.

Not 15 seconds later my new boss, the owner of the company, was in my office.

“Where were you?”

“I was at lunch with Denise.”

“It’s 2 o’clock.”

“Ah… OK…”

“Lunch here is only an hour.”

“Well once lunch was finished, we just continued our business conversation there.”

“But lunch here is only an hour.”

“It wasn’t just lunch, it was a business meeting. Does it really matter where we converse? There or here?”

“Yes.”

Bear in mind this was a conversation he was having with a new executive level hire. With a matching salary. With full P&L responsibility for a key part of his business. One that, if I might brag a bit, would go on to make him a ton of money. (Did OK myself, too.)

I still shake my head in disbelief. At the attitude, and that I stayed.

Jesse runs a company he founded called You Need A Budget, or YNAB for short. I don’t know what a Server Side Developer is or does, but were I still in the job market I’d figure it out, become one and go to work for Jesse at YNAB. Assuming he’d have me. Which might be assuming a lot.

YNAB might not be the best company in the world to work for, but it is hands down the best company in the world to work for I’ve ever heard of.

I first met Jesse when he showed up as an attendee at our inaugural Chautauqua. We were all very impressed with his story and how much fun he was to hang with. A few weeks later I saw him speak at FinCon. He barely finished his talk before I was asking him to be a presenter at Chautauqua 2014.

He did a fabulous job and brought along one of his key executives. This fellow had been living in Italy for the last three years. YNAB is based in Utah. Yeah, I was intrigued too.

He’ll miss watching clouds being born in the valley below our new venue: El Encanto

He says he doesn’t have the time. He cites the demands of running the increasingly thriving YNAB. His wife. His five kids. His intense exercise program. (He is the FinCon annual pull-up champion three years running, after all)

Some people have no priorities…

But I guess, when you are running the best company in the world to work for, you only have so much time.

OK. That’s a big claim. How do I back it up?

Well, if you look at that help wanted email I linked to above you’ll see that about half of it is about the job and the qualifications for it. The other half is about why you’d want to work for YNAB.

I don’t ever recall any company ever caring enough to spend any time explaining to me why I’d want to work for them.

Jesse does. Here’s what he says in that email:

A Bit About US

We build the best budgeting software around, called “You Need a Budget” or “YNAB” for busy people. For over a decade, people have been buying YNAB and then telling their friends what a difference it has made in their lives. (Google us, or read some of our reviews on the app store, and you’ll see what we mean.) We love building something that has a huge positive impact on people’s lives.

We’re profitable, bootstrapped, and growing. YNAB started in 2004 and we’re in it for the long haul. We haven’t taken any outside investor money, and we haven’t borrowed any money.

We have one overarching requirement when it comes to joining our team: our Cultural Manifesto has to resonate with you, you know, pretty deep down. If it strikes a chord with you, you’ll probably fit right in. We’re excited to hear from you.

First, let me sell you on the idea of working with us at YNAB. Then we’ll talk details on what we’re looking for.

How You’ll Work at YNAB

We work really hard to make working at YNAB an amazing experience. We have a team full of truly exceptional people—the kind you’d be excited to work with. Here’s how we operate:

Live Where You Want

We’re a distributed team, so you can live and work wherever you want. Proximity doesn’t influence productivity. As I write this, Taylor (our CTO) is in Italy. I’m not sure where he’ll be next. Not all of us travel so extensively, but the fact that he does is totally okay because we’re all adults. Just make sure you have a reliable internet connection.

No Crazy Hours

We rarely work more than 40 hours per week. There may be a few times where things go a little crazy and people log some more time. Most make sure to take some extra time off so it all balances out. We’re in this for the long haul. Don’t go crazy on the hours.

Take Vacation (Seriously)

We want you to take vacation. In fact, we have a minimum vacation policy of three weeks per year (plus two extra weeks for Christmas break). It’s important to get out and do something. Post pictures of your vacation in our internal chat room, creatively named #office_wall.

The YNAB Meetup

We get the whole team together every 12 months and have a great time. Best Western conference room, powerpoints for hours…and budget talk. Just kidding. Last year it was in Costa Rica. This year is a gigantic cabin in the mountains. We do really fun things, but the highlight always seems to be just hanging out together and having a blast.

International is Absolutely Okay

If you are Stateside, we’ll set you up as a W2 employee. If you’re international, you’ll be set up as a contractor. Employee or contractor, it’s all the same to us. You’re part of the team. (We are spread all over the world: Australia, Switzerland, Pakistan, Scotland, Canada, and all over the United States.)

If You’re Stateside…

We have a Traditional and Roth 401k option. YNAB contributes three percent whether you choose to throw any money in there or not.

Other Tidbits

Once you start, we demand (in a friendly way) that you fill out your “Bucket List” spreadsheet with 50 items. (That’s harder than it sounds!) YNAB then helps you knock off a significant item every few years.

The bucket list also really helps in deciding what we should give you for your birthday and Christmas.. No giftcards here. We tried that. Super boring.

We have a bonus plan, based on profitability. You’ll be in on that with day one. YNAB wins, you win. That kind of thing.

We’re all adults. There’s no need to punch a clock, or ask for permission to take off early one afternoon to go see the doctor. We look at what you’re accomplishing, not how long you sit in front of a computer.

Did I mention we make a huge, positive difference in people’s lives? You may not think that matters much, but then a few months down the road you’ll realize it’s made your job really, really enjoyable. Don’t underestimate this one!

If this sounds like your ideal environment, read on because now I want to talk about you.

Then he goes on to describe the ideal candidate.

I’ll be honest, if I had a company I’m not sure I’d be bold enough to run it like Jesse runs his. Too much old school training hammered in to me. But that’s a shortcoming in me. I sure would work for one.

My guess is, Jesse has his pick of top talent. That’s worth thinking about if you own or run a business. Given the choice, is that talent going to you? Or to YNAB?

While most of us will never get to work for YNAB, at least now we have a standard by which to measure other employers.

What we all can do, however, is benefit from the YNAB budgeting software. After all, you can’t grow a great company like this without great products driving the business.

Personally, I don’t use YNAB. But that’s only because I created my own spreadsheets back in 1993 when that was the only option if you wanted such things. Unlike Jesse, I wasn’t smart enough to turn them into a business.

But he has, and by all accounts YNAB is the very best option out there. I sure wouldn’t bother to create my own today. I’d turn to the folks who’ve already done the heavy lifting:

1500 Days:10 Questions with jlcollinsnh This will be followed in March by three installments of an extensive interview. Answering all his wide-ranging questions was great fun for me. If you enjoy this one, stay tuned for those!

When Tom’s comment/question showed up February 5, 2015 in Ask jlcollinsnh it immediately captured my imagination as a potential Case Study, mostly because it offered something different. He has arrived at a crossroad.

On the surface it was just a couple of simple questions. What retirement accounts to use? Can they be accessed before age 59.5? Questions I’ve answered many times here and have discussed in several posts. But the truth is, simply answering those wasn’t going to help Tom much.

Tom’s real issue was in the line: “I simply do not want to work a ‘regular’ job until 59-½, the thought of that is soul crushing…”

At some level Tom knew that’s what he was asking and so he provided some detail as to his situation.

In review, it was clear Tom has arrived at a crossroad. He could continue down the path he’d created hoping to escape or he could make a hard turn down an entirely new path, and actually escape.

The following is a combination of his original note and some additional information he provided in an email exchange. Let’s take a look….

Tom writes:

Hello Mr. Collins,

I am a follower of your site, and point anyone who seems interested here as well. I would find it very helpful to hear your advice for our situation, when you have a chance.

Personal Situation –

My wife and I are 35 and 37 years old, expecting our first baby this year.

I have a regular job, with Fidelity 401k and ROTH 401k plans available.

I currently contribute 15% to the 401k. Plus the 3% company match.

My wife works from home, has no company retirement plans available.

Together our annual income is ~$115,000

I also have additional income of ~$18,000: $1,500+ per month before tax, from side hustles, and intend to grow this further.

Boat: $14k on the Loan (Fishing is my one indulgence…important to my mental health )

Future Car to Replace Wife’s Vehicle: $TBD

Vehicles (both paid for) –

2003 Jeep Liberty (high miles and the one we want to replace)

2003 Ford F150

I simply do not want to work a “regular” job until 59-½, the thought of that is soul crushing…yet we couldn’t access any of our investments thus far until 59-½ anyways.

How do we get out of that ‘box’? In what order would you recommend investing in the various retirement account options in our situation?

There is a lot of information out there to clutter one’s mind. I feel stuck and unsure how to go forward, or what changes I need to make. I suspect just dumping everything into the 401k is not the best plan. Your thoughts are always appreciated.

-Tom

jlcollinsnh replies:

Hi Tom…

Thanks for the kind words and welcome.

I’m happy to give you my thoughts, but you might not like them. You are asking mostly about your investments when it is your lifestyle that stands in your way.

You say the thought of working to 59.5 is “soul crushing” and yet you’ve constructed your financial life as if you plan to work into your 70s. So let’s start with a reality check.

With the side gig, your annual income is ~$133,000. You don’t say what your annual expenses are but, since your only savings is the 15% to the 401k, they are running very high.

Let’s assume you are going to get those down to half your income: $66,500. Using the 4% rule, you’ll need $1,662,500 to generate that income. You currently have $213,000, plus basically zero equity between the two houses.

Your current savings rate is ~15%, less actually as that is simply against your job income. Take a look at this chart*:

The chart assumes an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate, which implies assets of 25 times your annual needs. So, this is not a gospel, but a guideline.

At a full savings rate of 15%, you’ll be retired in 33 years, when you are 70. Double that rate to 30% and you’re there by ~59.5. If you want to get there by age 47, you’ll need to save ~65%. Maybe a little less as you have a $213,000 head start.

At this point it should be clear that getting there is going to take a major shift in your priorities. Assuming you’re game, let’s take a look at what those might be:

—You need to max out your 401k and an IRA for your wife. You want these to be deductible to defer taxes and to keep as much of your money growing and working for you as possible.

—Your new savings rate is going to allow plenty more money to invest in a taxable account accessible anytime. Read the Stock Series on how.

—Unload the rental townhouse. Break-even is a terrible position to be in and, as you correctly observe, it leaves you vulnerable to large, random expenses. This is going to mean a hit to your cash reserves as you are underwater. But that is a sunk cost and it is important not to let such thinking keep you trapped.

–As an alternative, you could sell your house and move to the townhouse. This would preserve your cash and might (?) offer less expensive living.

–But if it were me, the truth is I’d dump them both and find the cheapest apartment I could tolerate. Ideally close enough to walk to work.

—Dump both vehicles and replace them with one small used indestructible Japanese sedan. Spend less than what you get for the Jeep and Ford on this. Should be easy. With gas prices down, economy cars are cheap just now and the price for your truck will never be higher. Try to bank at least some of the money.

–With your wife working at home, you only need one car. Yes, I know this will be inconvenient. But we did it right thru our teenaged daughter’s driving years. It just takes a little planning and coordination.

–The Jeep you say is used up and an F150 is way too expensive to operate if you are serious about reaching for FI.

–But wait, what about towing the boat? Well, about that…

—You borrowed money to buy a boat?? Look, I’m all for indulging myself. I own a motorcycle (bought used for less than $4000 cash) for that purpose. But then, I’m FI.

Before I was, my biggest indulgence and what was most important to my mental health, was buying my freedom. That meant investing every spare cent I could scrounge up. It is not my place to tell you how to spend your money, but you do need to decide what you truly care about:

Escaping a soul-crushing job or fishing from a fancy boat. If it were me, I’d dump the boat and fish from shore. Hands down.

There is no real reason a new baby needs to be an obstacle to your FI goals. But there are a lot of phony ones.

You are going to have to learn to avoid the “babies must be expensive” syndrome. No fancy strollers or SUVs because it’s easier to fit in the child seat. No cute new baby clothes that will be out grown in three weeks. The world is filled with barely used baby clothes. Kids need love, not stuff.

At this point, if you are like the vast majority of folks, you are recoiling in horror at most, if not all, of these suggestions. Precisely. This is why most folks will never reach FI. You have a choice to make.

Your obstacle to becoming FI isn’t one of investing, but one of lifestyle. And if you really want to escape that soul crushing job before you’re 70, reviewing the points above should give you an idea of what the task looks like so you can decide just how serious you are.

If you decide to go for it, turn next to Mr. Money Mustache. More than any other blog out there, he is the one who can show you in detail how to inject into your life the baddassity you’re going to need. But, be warned. He’s not as soft and fuzzy as I am. Here’s a sample of his take on driving a pick-up truck and this guy didn’t even have a fancy boat to tow:

“Holy shit, brother, how many heads of cattle and pigs are you hauling on that roundtrip, while simultaneously carrying international heads of state in the stately cabin? That is a fucking ridiculous vehicle for ANYONE to drive except the rarest breed of Farmer/Diplomat.”

Mr. MM would say your situation calls for a face punch or two. I’ll just say, you have some decisions to make. Oh, and now that you know how to shed that soul crushing job, should you chose not to make the changes needed, you’ve officially forfeited your right to complain about it.

My guess is, once you get started and see your stash begin to grow, those things that felt like sacrifices to give up you’ll come to see as the blood-sucking leeches they are.

The original title of this post was “Tom at a Crossroads.” J Money picked it up as a featured post in Rockstar Finance. In the process he retitled it much more compellingly as “Escaping a soul-crushing job before you’re 70.” With his kind permission, I’ve changed it here as well.

Each year I have the privilege of joining ~25 readers for a week in Ecuador at our now annual Chautauqua event. During the week I get to meet one-on-one with several of these folks to privately discuss their situations and to answer their questions. Cheryl, the owner of Above the Clouds Retreats, once said to me, “They all look so happy afterwards!”

The reason is pretty simple. As often as not, I’ve been able to tell them: “Yes! You are financially independent.”

Now these are all very smart people who have a clear sense of their assets. (They rarely have liabilities.) But having worked for some time and with great focus on their goal, they frequently have crossed the finish line without noticing. I then have the distinct honor and privilege of being the one who gets to point it out. Great fun, that. And smiles all around.

So too with today’s Case Study. John reached out in the Ask jlcollinsnh section a little while back and, in laying out his situation and questions, I was reminded of several of those one-on-one sessions. Here too was a guy who has worked hard, lived frugally and built his assets; and now I get to tell him he has arrived. Whoo Hoo!

This despite an unfortunate and fairly large at-risk investment with a relative.

Which reminds me of an important fact: The single most important factor that will determine your success in reaching financial independence is your savings rate.**

Certainly investing well is important, and that’s mostly what I talk about here on the blog. But you can make a lot of investing mistakes and, if your savings rate is robust enough, you’ll still get there. The truth is, I got there myself along a great trail of investing blunders and before ever investing in my first index fund.

That’s what a powerful savings rate will do for you. Of course, if I’d accepted the simplicity and power of indexing sooner, I would have gotten there far more quickly and with far less grief along the way. But then, I’m a slow learner.

But now let’s meet John, see where he is at the moment and see what adjustments he might make for the future.

John’s note:

Jim,

I’ve really enjoyed reading your website, blogs, etc., your outlook on investments, business, life, etc., make a lot of sense to me. If you could give me your input I would be so grateful.

Background

I know that all decisions are mine and I am responsible solely for their outcomes.

I am in midlife change. I am 56, single, no children, owned a small business for many years so I wanted to stay as liquid as possible.

I rent a 1 bedroom apt. in the Northeastern U.S. and live a simple, frugal, life, and love being outdoors cycling, hiking, and walking.

Not actually John

I left a job in 2014, and am looking at options currently ranging from possibly not working, to working part time in the business world.

My living expenses are about $1,600 monthly or $20,000 annually, and I don’t have any debt.

I am not sure at what age I will stop working; anywhere from now until 70 years old, I don’t plan on taking social security until 70 years old.

Investments

Retirement $190,000 in Vanguard, (includes $6,000 in individual stocks, a small amount in the Vanguard target date 2025 fund, but in total 9% in stocks, 3% in bonds, 88% in money market)

1. Retirement. Obviously I need to put the Vanguard retirement money into action. I’m thinking about putting it into the Vanguard total stock market index fund, and the vanguard total bond market index fund, the allocation maybe at 70/30 between stocks and bonds, using admiral shares.

I’ve read that you like putting it in as a lump sum rather than DCA (dollar cost averaging), but I’ve felt that we’re due for a correction, and, yes, I know that you don’t believe that one can successfully time the market. What would you do with the $190,000?

Where do you think the market is headed?

2. Can I afford to stop working now? Would you advise that? What should I do with the $410,000 in cash if I stop working? It seems that whether I stop working or start to work on my own now, I need revenue to pay my current monthly expenses, or I start drawing down on my savings.

3. What would you do with the $410,000 in cash if I go back to work and start earning money? Buy a home? Do nothing and stay liquid? Put it in the same Vanguard funds but in a taxable account (?)-seems like duplication. Make loans in lending club, betterment, etc.? Invest in T-bills, tax-free bonds, or a vanguard dividend paying stock fund? This probably would be short-term money, 0-5 years.

4. The $275,000 is investments in businesses with a close relative, I am nervous about being paid back, and this has caused me worry and stress. Any thoughts?

5. The property that I live in was sold recently, it is a 3 family built in the mid-1800’s, including an apt that I live in, and a large garage that can be rented out. I could have paid cash for it. I decided not to because of its age, I would not do the bigger repairs myself, and I was nervous about buying this before getting paid back on my business investments. If they went south I could be stressed financially, and I also wasn’t sure if I wanted to be a landlord. It is likely that it would have thrown off positive cash flow immediately. The fact that I passed on the acquisition has been bothering me, wondering about your opinion on this?

6. I live in what I call a “stupidly expensive” part of the country (the Northeast), due to the housing prices and cost of living. It doesn’t seem worth it, but maybe I’m just mad that I didn’t make a ton of money in the housing market!! I have some family here but other than that there really is nothing keeping me here. I’m considering looking at other parts of the country, where I can enjoy the outdoors more, either the mountains or the ocean. I’m tired of the “grey” winters and early darkness here, maybe I should go somewhere else for the winters, at least initially. I am considering Tucson, Albuquerque, Sedona, Santa Fe, Pueblo, Co., I have enjoyed not working, and spending days hiking and cycling in the desert southwest sounds appealing.

Any thoughts?

7. I like a simple life, and feel that there is value in that. I’ve read your opinion on renting vs. buying, but long term do you think I should look to purchase a home?

Finally, I know that these are questions that are personal choices, and it isn’t even fair to ask for your input, but any opinions that you have would be greatly appreciated.

John

jlcollinsnh replies:

Welcome John…

Let me start by saying “thank you” for your kind words but, even more, for your clear understanding of the limits of my inputs and the personal responsibility you bear for any and all actions you take.

I make this abundantly clear on my Disclaimers Page, but it is an important reminder. It is only when this is understood that I can offer any thoughts and advice to the best of my abilities and my understanding of any given situation.

Next, let me offer kudos for having constructed what sounds like a joyful life that has avoided the consumer spending traps that too often are substituted for happiness. Your simple, frugal lifestyle embracing such healthy and free activities as hiking, cycling and walking has, as we’ll see, put you in a strong and financially free position. Although, given your focus on outdoor activities, I can see why you have an interest in getting away from the Northeast’s winters. (In fact, there is a major blizzard closing in as I type this!)

Since you’ve also done a great job of laying out your situation and questions, let’s just walk through them one at a time, but a little out of order: 1, 3, 4, 2, 5, 7 and 6.

1. If you want your investments to grow and keep pace with inflation, you have far too much held in cash. While most see cash as ultra-safe, the truth is that it is a guaranteed long-term loser. Each year inflation erodes its spending power a little more. Death by a thousand cuts, if you will.

Stocks are, of course, far more volatile but they offer the growth needed to power a successful portfolio over the decades. In fact, the more stocks held in your portfolio, the more likely your investments will last.

Bonds, in turn, diminish growth but we hold them to smooth out the volatility of stocks. So in determining your asset allocation a key question is how big a price are you prepared to pay for that v. how important is growth.

You are also correct in that I am not a fan of Dollar Cost Averaging, nor can anyone time the market. Jack Bogle is fond of saying that in his 60+ year investing career not only has he never met anyone who can time the market, he’s never met anyone who has met anyone who can time the market.

I certainly can’t, although each year I make predictions in my annual contest designed to mock the very idea. If you want my predictions for 2015, you’ll find them there. Just remember that any resemblance to my predictions and what actually happens is pure chance. This, by the way, is true of EVERY expert out there making such forecasts. No matter how credentialed they may be.

That said, I would take $190,000 you have in Vanguard retirement accounts and the $410,000 in the taxable bank accounts and look at them as a whole for allocation purposes.

Your proposed allocation of 70/30 stocks and bonds sounds reasonable to me and I like the idea of using VTSAX (Vanguard’s Total Stock Market Fund) and VBTLX (Vanguard’s Total Bond Market Fund) as the investments.

But if you are very nervous about the market, you can increase your bond allocation. This is the better strategy than trying to time your entry into the market. Your allocation, not timing, is the right tool for mitigating risk.

Finally, because it is less tax-efficient, hold your VBTLX in your tax-advantaged retirement account. That said, your allocation design comes first. This means it is OK to have some VTSAX in your tax-advantaged account or some VBTLX in your taxable account if required.

3. In this question you asked about investing your $410,000 but, as you can see, I’ve already deployed it in the VTSAX/VBTLX allocation above.

You emphasize your desire for simplicity and I strongly second that. Those two funds are really all you need and, in owning them, you are very broadly invested in a diverse range of stocks and bonds.

4. The $275,000 you have invested with your relative has me worried, too. If you are not comfortable with the situation you should seek to get cashed out, even if it means taking a loss.

If you are unable or unwilling to do so, you need to make a clear, hard-nosed assessment of how much of that $275,000 is really secure. This is the number you should use in figuring your net worth and you should err on the conservative side.

Since I have no idea about the situation or how to value it, for the purposes of the rest of this Case Study I’m going to subtract it from your $880,000 total and work with $605,000 as your net worth.

2. Using $605,000 and the 4% rule(which should work nicely with your 70/30 allocation) your portfolio can support ~$24,200 a year. Since your annual expenses are only $20,000, the great news is that you are fully FI and with a withdrawal rate of only 3.3%. Congratulations!

Continuing to work is now entirely optional and the decision should be based on what gives you the most joy.

As for Social Security, your plan to wait until 70 years old to take it is a good one, provided you are in excellent health. The break-even for delaying payment is ~82-86 years old. Die before that and you would have been better off taking it at 66. The longer you live past that, the better your decision to wait until age 70 becomes.

Further, despite all the scary talk, Social Security is secure. It will be especially nice to have those larger checks as we become very old and our mental capacities diminish.

Personally, I too plan to wait till I’m 70. Actually, I will be surprised to live to be 82, but my wife is very likely to live well into her 90s and she’ll benefit from my larger checks. And, of course, I might get lucky!

Investing in real estate can be profitable, but it is also a part-time job and a very specialized one at that. It is not something to be done on a whim or without extensive research. If you are going to be a landlord, you had best become an expert in land-lording. Plus a building that old is likely to need an ongoing range of maintenance and repairs. I don’t read any desire for or interest in any of this in your note.

If you want to invest in real estate, there will always be properties to buy. But first, spend the time needed to educate yourself as to what’s involved. Only then can you make a sound decision and a profitable investment.

7. If you like the simple life, I certainly wouldn’t buy a home. Especially given that you are uncertain as to where you want to live.

Renting is likely to be cheaper, more flexible and more likely to permit you to continue living on $20,000 per year as you currently are.

Here’s an idea. Perhaps once you extract whatever money you can from that business venture with your relative, you can use some of that to buy a house if you’ve decided you really want one. Presuming that happens a few years down the line, you should also have a better idea where you want that house to be. Which brings us to…

6. Where to live. Like you, we live in the Northeast but here in New Hampshire things are slightly less “stupidly expensive” than in many other parts.

New Hampshire

While we’ve loved it here, sometime in the next couple of years we might very well move. We’ve been here awhile and we like change.

And, like you, we are closely considering the Southwest, specifically New Mexico. We’ve traveled there many times and have friends in the state. We find it stunningly beautiful and the endless visas are amazing. While NH is equally beautiful, the type of beauty is entirely different and, as I say, change is one of our motivations. We also prefer a dry climate.

New Mexico

That said, we do know people who have moved there from the more lush and verdant areas east of the Mississippi and who grew to hate the relentless browns, dust and lack of water. Will that be us? Who knows? But one of the beauties of renting is that it is easy to move on. Another reason to be slow to buy a house.

My pal Darrow recently made the move out there and he and his wife are thriving. You might be interested in his story on finding The Ideal Retirement Location.

You also mentioned liking the ocean and, of course, living on the water in the US is very expensive. But if you are willing to look to Latin America, all kinds of ocean side living options open up.

San Clemente Beach

I’m personally partial to Ecuador and I’ve enjoyed the time I’ve spent in the little fishing village of San Clemente. But there are many others.

Once you are no longer tied to a job, the world opens up and the limits are only your imagination.

You are in a great position to create the rest of your life as you see fit. Good luck, keep us posted and maybe I’ll see you out there!

I’m sitting under a couple of coconut palms, in a rattan chair, a view of the ocean in the distance. There are black and yellow butterflies on the red hibiscus flowers, and a lizard is watching me. In the tree beyond the terrace, I hear small yellow birds arguing noisily. I’m drinking a Carib beer and it’s barely 1 pm.

We’re in an Airbnb villa in the East End of Tortola for the next few days. A few hours ago, we got off of a 44’ catamaran which we shared for a week (a WEEK!) with 6 people we’d never met before:

Davide, from Milano, Mike, an Australian studying in Wisconsin, Yelena, from Croatia, now working in Phoenix, Karen and Mitch, both from the SF Bay area, and skipper Dean, originally from Dorset, England.

Everyone was roughly half our age. A good group, but we weren’t in charge of the sailing – Dean was, we just helped.

(The lizard is still staring at me. Not sure what it expects-)

We sailed from island to island, snorkeled often, went scuba diving, hiked up mountains, told stories over rum drinks in thatched restaurants, hoisted sails, picked up moorings, dropped anchor, and did most of the cooking ourselves on board.

We visited Trellis Bay, Beef Island, Norman Island, Peter Island, even stayed overnight off Marina Cay – many of the same names I remember from the trip in 1960.

The winds were strong at times, and we were glad someone else was in charge of the boat. But it gave us a good start on our sailing adventure – Stan steered, we all helped reef sails and ran around in dinghies.

I was amazed at how many other boats are in the marinas – it’s like a National Park on Memorial Day Weekend. Every popular marina is full.

But in bays where you have to anchor, or where there’s no bar, it’s pretty empty.

Out in the water, too, there is little traffic, but most people want a “good” spot for the best restaurants and bars. There is some serious partying going on out there, although our group was pretty relaxed and low-key.

By the end of the week, our clothes were salty and used, the trash was full and the water tanks empty, towels refused to dry anymore, we had bruises from bumping into boat parts as we hurtled along in high winds, and we managed to eat all the food and drink all the rum.

Everyone else has to head home to work today and back to “real life” – we get to stay.

Going back to the beginning:

The first 2-3 days, we stayed in St.Thomas. It’s hopping, and crowded and busy and up to 4 cruise ships dock on a day. Some of those cruise ships carry as many as 7500 passengers. (!) Yikes.

My favorite place was an old hotel on the beach called the “Island Beachcomber”, where Mom and Dad had regular rooms when Xanadu was built. An aging but graceful property. With good memories. Still, ready to leave and get sailing after 2-3 days.

Took the ferry over to Road Town, Tortola, more relaxed but still busy. Did I mention I found a scorpion in the bathroom sink?

The West End is more chic, our area is pretty local, goats and chickens running around, potholes and small roadside tire repair shops, no glitz. So we’ll spend a couple days here to catch up on emails, do laundry, recharge camera batteries and begin to actually study our sailing books. The week on the boat went so quickly! Amazing.

Part II: Learning to Sail.

January 15 – 5 pm. After 2 days of “Keelboat” We are bruised, and sore, and tired, but – we actually did it!

I think both of us were pretty nervous about the whole thing – and justifiably so.

It was physically demanding, out there on the “high seas”, winds 20-25 knots, waves, and us in a simple little 24’ boat, heeling like crazy, water nearly reaching the edge of the boat, no idea what we are supposed to be doing.

Our instructor was a young Swede named Tim, who usually races big professional carbon-fiber boats, so he was perfectly at home, while I was in a fair panic about holding the rudder, bouncing up and down and all around.

Stan and I hoisted the sails, climbing up on the cabin trunk, manned the sheets, the tiller, tacked and jibed and tacked again, each time scrambling from one side of the boat to the other, ducking under the boom, did 180’s and PIW (person in water) rescues – and we actually retrieved the fender (the fake man overboard) each time!

I didn’t think it could be done.

We rounded buoys, aimed for islands, and we would figure out how to get there, and what we needed to do. It was up to us to set the course and take the necessary actions.

We docked at the fuel dock, on sail only, left the pier backwards, sailed (without an engine) between the mega catamarans – without incident, navigated the harbor entrance coming and going several times, avoided several high-speed ferries and a tanker, and a number of motoring yachts. We even brought the sailboat back and moored it beside another one, coming up perfectly parallel before we tied ours to it.

We attached and raised the sails, took them down, and did all the necessary knots in the sails.

And now – we are physically and mentally beat. What a workout! I mean, even just climbing in and out of these boats takes some thinking for us.

I was a bit worried before we started – we both were. Were we up to this? There were NO small sailboats out between the islands, much less one with a 60 and 65 year old learning to sail.

Even this morning, we discussed it – we were both pretty apprehensive after Day 1. But, like with scuba diving, I knew Day 2 would be better. And it was. So last night, we were pretty beat.

We met the instructor on the 36’ boat this morning – to learn how to use the winches – I thought: Yikes! How can Stan and I EVER hope to control this massive piece of equipment? All by ourselves? And not kill ourselves and others in the process?

But the day went well, and we did a LOT.

Tim gave us a pretty thorough workout. Of course, he’s 28, fit, and he’s been sailing since he was 7. He has no idea how clueless we are. And how hard it is for us. He just stands up in the steeply heeling boat, at what seems to us to be a death-defying 45 degree angle, calmly talking, while we are desperately trying to hold onto something and not fall out of the boat. Wow.

I am rather proud of us.

We tacked back and forth thru the marina, on sail alone, in our small motor-less comparatively tiny boat – thru all these mega yachts and mega catamarans, incredible wealth on display – and were able to find our way thru them, as crowded as they were, without hitting anything.

That part was really easier than I expected.

It was the heavy wind and waves and heeling that made me uncomfortable at first. But soon I realized that the waves mean little – it is all a question of wind. I didn’t know that.

And knowing who has the right of way and how to avoid other boats, what you’re supposed to do when 2 vessels come close to each other.

We met situations – and Tim would let us figure out how to get out of them on our own. How to de-tangle a twisted jib, how to recover from a missed tack and an uncontrolled jibe. We did a LOT. When we said good-bye to Tim, we were sweaty and salty and exhausted.

And so now we’re “home”, after negotiating the Tortola traffic, driving on the narrow roads, left- hand side, with the wheel on the American side, with crazies passing us on hairpin turns, up and down mountains, and having to maneuver, only an inch to spare, mirrors pulled in, thru the steep jungle road past another car, just to get to our place. *whew*

Stan is icing down his bruises (they are rather stellar, blue-violet and red-violet, and huge-) and I’m off to a hot shower. Then a glass (probably we’ll finish the bottle) of rose from Provence (a find in the chandlery) and we’ll be in bed by 9, as usual.

Tomorrow we take our sailing exam.

Here’s the weird part:

The exam is only required for people who want to charter boats. (We hope to get our International License, which gives us the option to charter in other countries.)

However:

If you BUY a boat – even a huge, 72’ mega-yacht with all the fancy instruments, gadgets and trimmings – there is no licensing requirement to drive the thing. You can get out there and just – GO.

This is a rather scary thought.

There are a LOT of boats here. Mostly docked in a marina.

What happens is – someone buys a boat, and leases it back to a company as a charter, so they can count it as a business. This helps defray their cost, and they can write their own vacation off as a “business” expense.

So a lot of these boats are charters. Most people come down for just a week or two a year, if that. They bring some of their friends, but they’re not in practice. So they just motor along, and never even put up their sails! They don’t really know how to sail.

It’s more of a huge “party barge” – for a good vacation. (And it is!)

So when we sailed – with sail only – into the fuel dock, we got all sorts of cheers from the guys with mega yachts who had used their motors to get in there. They wouldn’t have been able to do what we did.

The world is a funny place.

A note from jlcollinsnh:

The above report came to me as emails from my pal Trish. The photos are also hers.

Close readers of this blog will remember her as one of the two who kidnapped me back in the mid-1970s while I was riding my bicycle around Ireland. She and Wolfgang, her then accomplice and now ex-husband, grabbed me out of my comfortable B&B in Dingle, stuffed me into the back of their VW Bug and hauled me up to Galway. Much pub crawling, music listening and hay-loft sleeping ensued, until they finally kicked me loose to make my own way back to my bicycle.

We have, of course, been friends ever since.

She has lived and worked all over the world, including Iran where they fled the revolution with the clothes on their backs to Germany and on to Liberia where they arrived the day of the revolution there to soldiers with automatic weapons milling about their house.

It was in Africa that she learned to fly and then…

…well then there is simply too much more adventure to recount here.

Fortunately, she has written a book:

It is filled with her stories and gorgeously illustrated with her own rather stunning watercolors. If you read closely, you’ll even find one or two that concern me.

So, understanding all this, it is no surprise that she and Stan are now learning to sail with an eye on buying and living on a boat that they might very well sail around the world.

]]>http://jlcollinsnh.com/2015/01/21/trish-and-stan-take-an-intrepid-sailing-voyage/feed/212014 Annual Louis Rukeyser Memorial Market Prediction Contest results, and my forecast for 2015http://jlcollinsnh.com/2015/01/08/2014-annual-louis-rukeyser-memorial-market-prediction-contest-results-and-my-forecast-for-2015/
http://jlcollinsnh.com/2015/01/08/2014-annual-louis-rukeyser-memorial-market-prediction-contest-results-and-my-forecast-for-2015/#commentsThu, 08 Jan 2015 22:00:46 +0000http://jlcollinsnh.com/?p=6517Just about this time two years ago I published a bit of satire titled How to be a Stock Market Guru and get on MSNBC. In it I mocked the idea that anyone can predict the short-term market and laughed at those who claim they can. Just as one of my financial heroes, Louis Rukeyser, used to do on his weekly TV program Wall Street Week.

Every January Rukeyser would have his impeccably credentialed guests predict the market’s high, low and close for the year. I forget his exact line, but after the predictions were in he’d say something like, “…with the understanding that even these exalted experts could be wrong, there you have it.” And he’d wink knowingly into the camera.

Come the following December 31st he’d salute those few who’d come closest and chide the many goats.

The key thing his program and its parade of guests taught me is that, at any given time, some expert is predicting any possible future that could conceivably happen. Since all bases are covered, someone is bound to be right. When they are, their good luck will be interpreted as wisdom and insight. If their prediction happened to be dramatic enough, it could also lead to fame and fortune. But it is all nonsense.

Sadly, Mr. Rukeyser passed away in 2006 and the current generation of investors is left without his insights and wisdom

But in that post, in his honor and his lighthearted spirit, I introduced the jlcolllinsnh.com 1st Annual Louis Rukeyser Memorial Market Prediction Contest.

Then, after all this emphasizing of how silly such predictions are, I went and won the damn thing myself. At least on the high and close picks. In fact, my prediction for the 2013 high, at 1825, was a scant 24 points off the actual high of 1849. Doesn’t get much more precise than that. Or lucky. But even that wouldn’t have been good enough to win this time.

In the comments last January ~40 of you readers chimed in with your own predictions for 2014. Shortly I’ll share the winners and, of course, chide a few of you goats. So far, no one has equaled my first year feat of winning two of the three categories, although as you’ll see two of our winners came very close.

OK. So how did the market, as measured by the S&P 500, do in 2014 and how close did I come?

S&P 500 2014:

High: 2091 reached on December 29th

Low: 1742 reached on February 3rd

Close: 2059 on December 31st

jlcollinsnh said:

High: 2218, off by 127 points

Low: 1806, off by 64 points

Close: 2125, off by 66 points

Pretty impressive for a guy who doesn’t believe predicting the market is possible. But not nearly impressive enough to win even one of our categories this year.

So, who among my readers had the audacity to best me at my own game? Turns out there were several, but the best of the best are….

For the High:

Pura Vida Nick took the honors for his prediction of 2084 for the high, missing it by a scant 7 points.

His closing prediction of 2029 was also remarkably close to the actual close of 2059, but not close enough to win.

In his comment, he observed: “My crystal ball simply says I may get lucky, and that’s the only reason I would win anything.” Your becoming humility has served you well, Sir!

For the Low:

The very first commentor last year, Reepekg, takes the low crown with his prediction of 1735, also just 7 points off.

Of course, Reepekg cheated by using owl pellets to help select his winning number:

“I cracked open some owl pellets and divined…”

But then he has a history of using unfair tactics:

“It all started when I won a stock market game run by a major newspaper (beating 5 investment experts) at age 15 by picking companies that most closely resembled the names of girls I dated or had crushes on.”

Even so, he turned out to be way too pessimistic on his high of 1986 and close of 1937. Owl pellets and girls’ names can only take you so far.

For the Close:

We had a three way tie. Each predicting 2050, just nine points off, were RW, Chris K and dude.

RW consulted “…the tea leaves because my crystal ball is a bit cloudy after New Year’s eve.” Unfortunately, those tea leaves didn’t help him on his high of 2180, which was 89 points too optimistic and they led him to expect a “crop failure or a digital breakdown” which he said would drive the market down to 1680. 62 points too low.

RW also has the distinction of coming within a 1-point whisker of beating me for the high in the 2013 contest.

In picking his 2050 winning close number, Chris K said:

“No reason why I picked this other than I think the housing and automobile sales will continue to climb (thus giving everyone much more confidence)…” Indeed both housing and car sales improved, but that didn’t help with Chris’s 2197 high (off 106) or his 1648 low (off 94).

“IMF and others have been consistent in their predictions for 3% (or more) growth for the U.S. for 2014. Jobs numbers showing steady improvement. Bringing earnings up will keep P/E ratio in line with prices and make stocks still the place to be. U.S. oil production making us a stronger economy (if at the expense of our environment). Election year means the idiots in Congress will not toy with the economy this year. Obamacare gains traction and actually begins to spur entrepreneurialism as smart people in big companies strike out on their own without worrying about losing their health care. Wall Street will take profits here and there making for a few dips, but overall, the market continues its upward trend.”

He also came within 21 points of the high with his call of 2070. Even his 1680 low, while off by 62, beat my own by 2 points.

At the time, I replied:

“Dude! Your analysis makes such perfect sense your predictions are almost sure to be wrong!”

Turns out I was the one who was wrong. Thanks for spoiling my plans for mocking you this year, dude.

But just to show there are no hard feelings, we’re going to use your High prediction as the tie breaker and declare you the winner in this three way for closing.

Still, that’s the problem with round numbers, guys. If only one of you had showed a little gumption and come in at 2051. We can all learn a lesson from Fat Chance whose closing prediction was 2088.24. Now that’s precise. Wrong, but precise.

Fat Chance also tried to persuade me to end the contest early with his December 26 plea in the comments on last year’s post:

“Can you end the contest 2 days early? I am really, really close…..” How insulting! He didn’t even offer a bribe, so of course not.

How close was he?

High: 2100, off by only 9 points and off only 2 points from our winner.

Low: 1830, off a dismal 88.

Close: 2088, off 29

Well within bribing distance! He did, however, redeem himself with a great movie recommendation: Wolf of Wall Street

OK, enough of that. Let’s get on with chiding the goats!

Poor goats. Always on the edge.

We’ll start with the Big Losers…

Carnac called for a close of 1585, missing it by 474 points for the worst call of all in that category. 1585 was also his call for the low, but fully five people did even more poorly in their lows. In posting his predictions, Carnac said, “Why? No idea…”

No idea, indeed! Still, he redeemed himself somewhat with his call for a high of 2133, only 42 off the mark.

Reekwind was our biggest, and wrongest, pessimist calling for a low of 1311, off the mark by a whopping 431. Thankfully.

He was also way too optimistic, with a 2380 prediction. But, like Fat Chance, his 2100 call for the close almost put him in the winner’s circle.

That’s quite a range and, as he said at the start: “I’m expecting a more volatile year…”

Last year, Rob Diesel was our overall winner. His 2013 high came in at #3, his low at #1 and his close at #2. Very impressive and nobody this year came even close to that overall performance. But this year? This year, not so much…

This year Rob is our biggest, and wrongest, optimist calling for a high of 2613, off the mark by a whopping 522. Wouldda been nice though!

He also posted the second worst performance in the closing category with his 2483 prediction, off by 424. Fortunately, his 1632 low missed by only 110, saving him from a clean sweep in the goats placing. Still, it’s enough to crown Rob our biggest loser!

Shilpancame in second for predicting the low and third for the close. Amazingly, as with last year, his low of 1720 is again good enough for second place, off only 22 points. But his high and close, off 149 and 121 respectively, are only mid-pack this year. As he said: “I still have no crystal ball and believe that a monkey can do a better job of picking numbers than I on any given day.”

Not sure, but he might be calling you winners monkeys….

The Mad Fientist proved again this year that you can be a wicked smart financial blogger and still suck at predicting the market. While his high only missed by 61, his low was off by 140 and his close of 1757 missed by 302! I’m sure he is celebrating that mistake on the close with the rest of us.

Estate attorney Prob8 is a regular commentator around here and has become our resident death-taxes-probate-estate planning resource. He even has a guest post on the subject. Last year his predictions failed miserably. This year he said:

“My market predictor must need new batteries. Having now replaced said batteries, here is what my market predictor predicts:

High: 2125
Low: 1813
Year End: 2071

“If this thing doesn’t work this year I’m throwing it out and calling Martha Stewart.”

Mmmm. Missed by 34, 71 and 12. Not good enough to win in this very competitive year, but impressive none-the-less. Martha Stewart couldn’t have done any better. (And if you think you can, Martha, give it a try this year!)

The New Mexico Lobo expressed shock last year at what seemed to be unfounded and rampant optimism run amuck. His pessimistic predictions went on to earn him the title of biggest loser in the 2013 contest.

Posting under a new name, “George Hahn,” this year he said, ‘I hope that I can hold on to my coveted crown!!” and went on to predict:

High: 2032

Low: 1478

Close: 1663

Off by 59, 264 and 396. You’re still a big loser, Mr. Hahn. Just not the biggest this year.

Rummaging thru some more of last year’s comments and predictions, we also have….

Lindawho told us: “From the outstanding results of the stock market this year, we can predict that the only way it can go is up in 2014! Everyone and their grandmother will be piling into the stock market anticipating the juicy inevitable returns, which will take it up by at least 20% at the high.”

Solid premise, even if we only got to an ~11% gain. That’s just half what you promised, Linda!

earlyretirementsg declared “I totally don’t believe in market prediction…” and then went on to make his anyway. Unfortunately, they were wrong. Although in calling for 1700 on the low, he got to within 42 points.

Dave @ The New Yorktold us: “I’m pretty sure I’ll get this right through osmosis as the NYSE is in right here with me in NYC!” And then went on to get it wrong. The closest he got was his 2117 call on the close, off by 58.

Frankies Girl “spent most of this year reading lots of blogs and learning what I could…” and then got it wrong. Perhaps more reading? Still, her 1777 low was only off 35, crushing Dave who has the NYSE right in his back yard!

Adam W.“…killed a chicken and spread its insides around. They formed a stock graph that clearly showed that the year was going to end down.” Wrong, but at least he tells us the chicken was delicious.

Anyways, Enjoyproved overly optimistic with his call for 2325 on the close.

“Why? Mostly because this New Year’s Eve I drunkenly argued that 2013 was the greatest year in the history of the world and that 2014 will be also be the greatest year in history.”

Surprise! Alcohol does not an accurate market prediction make.

OutBy54 confidently told us “A short term correction is inevitable during 2014.” Easy call, that. A short-term correction happens at least once most every year. Not this year! But then, as he confided, he “only spent 30 seconds thinking about it.” We got what we paid for….

“Inevitable.” I said in reply. “Now that’s the kind of mockable word usage I was hoping to see in these predictions….My hope, for mocking purposes, is that you’re dead wrong.” Wishes do come true!

Mark had “No real logic, just throwing some numbers out there.” They were the wrong numbers as it happens. But not as wrong as those of some claiming to use logic.

Ralph was also “Just throwing out numbers” that also happened to be wrong. But really, that’s all any of us are doing, Ralph just admits it!

m also put “…my hat…in the ring, with minimum thinking involved.” Good to know coming up with the wrong answers doesn’t have to take much thought. Still, m is already bugging me in comments from last year as to when this post declaring his/her failure will appear. Here you go m: Your validation as a loser has arrived!

jkenny said “Definitely feel like the market’s going to lose it’s head of steam by year end, but I felt that way in 2013 too. Could I have been wronger?!” Maybe not wronger, but wrong again none-the-less.

Jeremy of Go Curry Cracker fame said “Since I want the stock market to crash this year so I can move our bond position into stocks, I expect the stock market will do nothing but go up. This is pure science.”

Right on target and his 2089 close was only 30 points too optimistic. Better (worse?) luck in 2015, Jeremy!

Dave Schmidt whined: “This is a very difficult prediction to make since I cancelled cable and I never hear any financial news or predictions these days.” And then went on to make some of the better predictions:

High: 2213, off by 122 (OK, this one’s not so good…)

Low: 1719, off by 23

Close: 2071, off by 12

Seems avoiding the financial news doesn’t hurt!

smedleyb complained in his comment/prediction last year about my having called him “completely wrong” in his predictions for the year before. Then he went on to say:

“A nearly 20% swoon lower in early spring puts the kibosh on this unrelenting bull. The market spends the year trading in a range as contradictory crosscurrents like higher incomes, improving confidence collide with rising rates and the resurgence of ‘fear,’ conspicuously absent from this market for the greater part of a year.”

And I get to say, “completely wrong” again!

Interestingly, his call of 2050 for the high would have tied him as one of the winners had only he made that his call for the close. Instead, he told us to expect 1800 at year’s end.

Maybe this year, smedley.

Think you can do better?

In the comments below post up your predictions for the S&P 500. Tell us the high, low and where it will close come December 31, 2015. And put in a line or two as to why so I’ll have something to mock you with when you fail.

All in good fun, of course, and knowing this is all just so much nonsense.

That right there is the difference from us here at jlcollinsnh and all those TV talking heads. While we’re all making predictions, unlike them, around here we know we’re just talking out our…

…hats.

For those of you who were wrong this year, there’s no reason you might not redeem yourself for 2015 if you’ve the courage to try once more. We’ll be waiting to mock you yet again if you fail. Heh.

For those who did well, let’s see you do it again. As Rob Diesellearned, mocking your failure will be even sweeter!

Last year, when I made my calls, I was already planning to predict a down year for 2015. I figured this bull market, in which we’ve been basking, would be ready to pack it in. In fact, I didn’t really expect it to last thru 2014.

But here we are and, as we enter the new year, the economic recovery this rising market has been predicting seems to be here and getting stronger. My guess is the momentum will keep rolling and we’ll see an even better year than last. If I’m right, this will take the bull into its seventh year.

Along the way, I think we’ll also finally get a real correction in the 10-15% range, most likely in the first half. But I don’t expect it will last long.

Gee, reading that it almost sounds like I know what I’m talking about and really can divine the future. Don’t you believe it. And certainly don’t take any of this too seriously. My crystal ball is just as cloudy as everybody else’s. My owl pellets are just as moldy.

I’m certainly not changing my investment allocation and strategy based on any of this nonsense and you shouldn’t either. As Mr. Rukeyser would gleefully point out, past results are no indication of future performance and even I can be wrong. As I’d point out, I most often am. We’ll see come next New Year’s Eve.

Finally, thanks for your readership and support of this blog!

May Your 2015 be Healthy, Happy, Prosperous, Free and filled with Joy!

As for us, we are off to Los Angeles for the holidays. We’ll visit some family and, after a year, I get to take a group of jlcollinsnh readers at Dreamworks up on their offer to visit and take an insider’s tour. Very exciting! Plus I’ll be doing my first ever reader meet-ups while out there. Then I’ll get to head back East by rail for my first ever transcontinental (LA-Boston) train trip.

But before all that I want to wish all my readers, regardless of where in the galaxy (or which galaxy for that matter) you may be:

A Joyous Holiday Season

and

a Happy, Healthy and Prosperous New Year!

Until next year, here are some random cool things that have caught my eye….

Are you about to be engaged? Congratulations! Now read these before you buy the ring:

Back in August I was working on a project helping a friend with her business. I had forgotten we had agreed on a $1500 fee until, as I was headed to the airport, she pressed a check into my hand. Perhaps this is why I’ve considered it “found” money ever since.

As such, and not having any other plans for it, I set to figure out something interesting to do with it.

I considered squandering it on something absolutely frivolous. But this goes against my nature and so I lack imagination along these lines.

I considered buying something we want and/or need. But, truth be told, we don’t want or need much and we are more interested in getting rid of stuff than acquiring more.

I considered giving it away, but we have a funded system already in place for that.

I considered, this being the Christmas season, converting it into 75 twenty-dollar bills and handing them out at the local shelter or soup kitchen. That could be interesting and fun, but would likely land me on the local evening TV news. Bleech.

So I gradually forgot about it. Floating about in our checking account, it seemed destined for covering the most pedestrian of expenses.

Then a bit of fortunate serendipity brought an old post David had written last December on The New York Budget about his experience with Kiva and micro-finance lending.

Micro-finance lending is a concept I came across a few years back and it has always intrigued me.

In many parts of the world, one of the key obstacles to rising out of poverty is the lack of access to affordable capital. This makes it extraordinarily difficult to start and/or grow a business.

Those of us living in the developed world tend to think of the key to financial success as a job. Indeed, we have come to think of access to jobs as a right. But in the developing world, not only is there no such right, such jobs are few and far between. Livings are made not by paychecks, but by hustle. You buy a box and some polish and shine shoes. You buy a cow and sell milk, or a chicken and sell eggs.

Of course, this takes capital. But not much, and this is where Kiva comes in. Using Field Partners around the world, Kiva connects lenders with borrowers. Their website provides profiles of the people looking to borrow and the amount they need. As a lender, you can provide as much or as little of any given loan as you choose. It only takes $25 to start.

In the comments on David’s post, I asked if he was still enthusiastic about his participation with Kiva a year on. He confirmed that he was. I then turned to Charity Navigator: Kiva for a bit of due diligence. Very impressive scores:

Overall: 98.76 (out of 100) for a top rating of 4-stars

Financial: 98.26 (out of 100)

Accountability: 100 (out of 100)

The next step was a fun tour around the world looking at the profiles and in the process getting a brief and fascinating insight into many lives. When the dust settled, we had made 16 loans, two for $50 each that completed the fund raising for those borrowers and the rest in $100 chunks. Here’s a sample:

In Palestine: To Kahadejeh to help repair her tractor.

In Tanzania: To Beatrice to help her buy used clothing for resale.

In Mongolia: To Bayarsaikhan to help him buy two cows.

In Tajikistan: To Sitora to help her pay for tuition.

In Philippines: To Cirila for organic fertilizer to help restore the soil she farms.

In Sierra Leone: To Hawanatu to help her buy stock for her grocery store.

In Nigeria: To Philibus Maigemu so he can afford to store the maize he grows for better prices later.

As you can see, we were fairly eclectic in our choice of country, gender and loan need. But you can sort your own search however you please.

Now here’s what I think is really cool about all this. Since these are loans, the money gets paid back. Kiva maintains a status report of all your loans and their payment schedule. As payments are made you can choose to have your money returned or you can re-lend it. Your money can help make the world a better place over and over and over again. That’s our plan.

If you have a financial mind like I do, you are probably wondering about default rates and currency risk. Here you go:

Default rate: ~1.11%

Loss to currency exchange risk: ~0.09%

Plus, according to Charity Navigator, the IRS accepts donations to Kiva as tax-deductible. But, as Greg points out in the comments below, this refers to donations made to Kiva to cover their operating expenses and not any micro-loans you make thru the site.

So if you’ve got some extra dough burning a hole in you pocket, and you know you do, click on this Kiva link and sign up.

Yep, this is an affiliate link, but not for jlcollinsnh. I figure since David brought this all to my attention, he deserves the link. When you sign up he’ll get a $25 credit in his Kiva account, which he has pledged to promptly lend out. It will help him reach his goal of having a loan in every country they offer.

If it went to me, my imagination just might kick in and the next thing you know I’d be squandering it on…

…a nice $1800 set of Japanese Ice Ball Molds

Update: February, 17 2015

Withdrawing your money

Periodically, since making our loans totaling $1500, I’ve been getting emails from Kiva reporting on repayments. As of today, $201.33 has been repaid.

As your money is repaid, you have three options:

Re-lend it

Donate it to Kiva

Have it paid back

Obviously, Kiva would prefer you to chose one of the first two. But I was interested in how easy the process would be to get it back. So I went on-line and pulled $100. My plan going forward is to reinvest the rest and the outstanding balances as they get repaid.

The process is very easy, but you must have a PayPal account. If you don’t they provide a link to set one up. From there it is a matter of entering your PayPal info and with a few clicks you’re done.

At one point an option to donate to them appeared with a suggested amount of $15 of my $100. So my guess is that 15% is the programed in request. I found this a bit off-putting, but then I’m cranky.

They say it will take 1 to 2 weeks for the money to show up in my account. This seemed a bit long, but all is well. Almost instantly I received this nice confirmation email:

Hi James,

This email confirms your withdrawal request of $100.00.

Withdrawals are processed manually, so sending funds to PayPal takes
longer than accepting funds. Kiva typically processes withdrawals
weekly, so you can expect to see your funds deposited into your PayPal
account within 1 to 2 weeks.

If you have read this blog for long, or any of my Chautauqua posts, you know that for the last couple of years each Fall we have taken a small group to Ecuador for a week of adventure and conversation surrounding life, freedom, happiness and investing. We call it a Chautauqua, an old Native American word that Robert M. Pirsig, the author of “Zen and the Art of Motorcycle Maintenance,” translates loosely as

“…an old-time series of popular talks intended to edify and entertain, improve the mind and bring culture and enlightenment to the ears and thoughts of the hearer.”

Both times now we’ve attracted an incredibly diverse and fascinating group of people. Almost everyone has described it as one of the (if not the) best weeks of their lives. To give you a flavor of what goes on, here’s my recap of the last one: Lighting Strikes Again.

We all know that, in reading blogs like this one, we are walking the path less traveled and frequently not understood by those in our daily lives. But for this one week we get to be surrounded by others who “get it.” The fact we get to do this in a stunning beautiful country while staying at Hacienda Cusin, a gorgeous old estate and monastery built in the Andes mountains in 1602, still leaves me a bit slack-jawed.

And this time I also get to escape, if only for a week, a bit of the sometimes brutal New Hampshire winter. WooHoo!

The son of her farm worker borrows her truck and promptly rolls it. Her response to this very poor young man: “There are three responsible parties for this. You, who rolled the truck. I, for letting you take it. God, for permitting it to happen. You will pay a third of the cost (bartered in his labor as he had no money), I will pay for a third and I will see what I can do about getting the final third from God.”

This delivered with a smile, a wink and a laugh. Clearly, Cheryl is someone I can learn from. Maybe you can, too. Her talk is Following Your Bliss.

Paula Pant is a journalist, globetrotter, entrepreneur, investor who has traveled to 32 countries. She’s her own boss and lives on her own terms, and she’s figured out how to live and work anytime, anywhere in the world. She writes the wonderful and wonderfully named blog Afford Anything

Tyler Lewke is new to me. So new, in fact, this is the only picture of him I could find. Here’s what Paula has to say about him:

“…a rebel who blogs at the crossroads between capitalism and spirituality. He’s a corporate CEO who believes that “loving kindness … creates profit.” He’s the offspring between a genius scientist and a hippie (literally and symbolically), he hasn’t had an employer since age 17, and he blogs daily about the intersection between “hard core capitalism” and “contemplative service to others.” Tyler will speak about finding sustainable happiness in work and life.”

OK, I’m intrigued! How about you? Looking forward to meeting and hanging out with you, Tyler!

So these are your speakers and hosts. But unlike many events, we won’t be just getting up, giving our talks and disappearing. We’ll be hanging out with you all week. This is part of what makes these Chautauquas so special for us and for the attendees.

You’ll also have a chance to select two of us for private one-on-one-sessions. Each will be an hour-long and you’ll have a chance to discuss whatever issues are most pressing for you. To have time for these is one key reason why we limit attendance. While we’ll try to accommodate everybody’s first and second choices, slots will be allocated on a first-come-first-served basis. So if you want me, or if you want to be sure not to get stuck with me, you’ll want to sign up early.

As before, attendance is limited. In the past we’ve been able to accommodate 25 attendees. But because Hacienda Cusin is in demand we were unfortunately not able to secure as many rooms as before. This means we’ll only be able to accommodate ~15-20 attendees, depending on how many room-sharing couples sign up. So this will be an even more intimate gathering.

Notes:

Los Angeles

December 26 – January 4 I plan to be in Los Angeles. I’ve never done a “reader meet-up” before, but I think it would be great fun. Maybe a small group of us meet for lunch and hang out for awhile? If you are interested let me know and, of course, I’ll need a volunteer(s) to select a venue and organize it.

LA update: Looks like we’ll have two reader meet-ups and I’ll be visiting a group at Dreamworks:

At some point in your life you may find yourself in the happy dilemma of having a large chunk of cash to invest. An inheritance perhaps, or maybe money from the sale of another asset. Whatever the source, investing it all at once will seem a scary thing as we discussed in Part XVIII.

If the market is in one of its raging bull phases and setting new records each day, it will seem wildly overpriced. If it is plunging, you’ll be afraid to invest not knowing how much further it will fall. You risk wringing your hands waiting for some clarity and, as you should know by now, that will never come.

The most commonly recommended solution is to “dollar cost average” (DCA) your way slowly into the market. The idea being, should the market tank, you will have spared yourself some pain. I’m not a fan of this strategy and will explain why shortly, but first let’s look at exactly what dollar cost averaging is.

When you dollar cost average into an investment you take your chunk of money, divide it into equal parts and then invest those parts at specific times over an extended period.

Let’s suppose you have $120,000 and you want to invest in VTSAX, the total stock market index fund we’ve been discussing throughout this Series. Now having read this far in it, you know the market is volatile. It can and sometimes does plunge dramatically. And you know, therefore, this could happen the day after you invest your $120,000. While unlikely, that would make for a very miserable day indeed. So instead of investing all at once you decide to DCA and thus eliminate this risk. Here’s how it works.

First you select a time period over which to deploy your $120,000, let’s say the next 12 months. Then you divide your money by 12 and each month you invest $10,000. That way, if the market plunges right after your first investment you’ll have 11 more investing periods that might perform better. Sounds great, right?

This does eliminate the risk of investing all at once, but the problem is that it only works as long as the market drops and the average cost of your shares over the 12 month investing period remains on average below the cost of the shares the day you started. Should the market rise, you’ll come out behind. You are, basically, trading one risk (the market drops after you buy) with another (the market continues to rise while you DCA meaning you’ll pay more for your shares). So which risk is more likely?

Assuming you were paying attention while reading the earlier Series posts, you know that the market always goes up but it is a wild ride and no one can predict what it will do in any given day, week, month or year. The other thing to know is that it goes up more often than it goes down. Consider that between 1970 and 2013, the market was up 33 out of 43 years. That’s 77% of the time.

At this point you are probably beginning to see why I’m not a DCA fan, but let’s list the reasons anyway:

By dollar cost averaging you are betting that the market will drop, saving yourself some pain. For any given year the odds of this happening are only ~23%.

But the market is about 77% more likely to rise, in which case you will have spared yourself some gain. With each new invested portion you’ll be paying more for your shares.

When you DCA you are basically saying the market is too high to invest all at once. In other words, you have strayed into the murky world of market timing. Which, as we’ve discussed before, is a loser’s game.

DCA alters your asset allocation strategy. Suppose you had $100,000 and your allocation was 50% stocks, 25% bonds and 25% real estate equity in an investment house. Now you decide to sell the house, planning to invest the $25,000 from it into your stocks for a 75/25 stock/bond allocation. If you decide to DCA, your real allocation in the beginning is not your 75/25 target. It is 50/25/25: 50% stocks, 25% bonds and 25% in cash. You are holding an outsized allocation of cash sitting on the sideline waiting to be deployed. That’s OK if that’s your allocation strategy. If it’s not you need to understand that, in choosing to DCA, you’ve changed your allocation in a deep and fundamental way.

Unlike stocks, the cash you have waiting to invest is not earning dividends. For example, VTSAX pays ~2% in dividends.

Your cash should earn some interest, but with rates being under 1% and inflation running at around 3%, each year your cash effectively loses ~2%. Combined with the dividends not collected (Point #5) that’s a 4% drag on your returns.

When choosing to DCA, you must also chose the time horizon. Since the market tends to rise over time, if you chose a long horizon (say, over a year) you increase the risk of paying more for your shares while you are investing. If you chose a shorter period of time, you reduce the value of using DCA in the first place.

Finally, once you reach the end of your DCA period and are fully invested, you run the same risk of the market plunging the day after you are done.

What to do instead?

Well, if you’ve followed the strategies outlined in Part VI, you already know whether you are in the wealth accumulation or wealth preservation phase.

If you are in the wealth accumulation phase you are aggressively investing a large percentage of your income. In a sense, this regular investing from your monthly income is a form of unavoidable dollar cost averaging and it does serve to smooth the ride. The big difference is you’ll be doing it for many years or even decades to come.

But you are putting your money to work as soon as you get it in order to have it working for you as long as possible. I’d do the same with any lump sum that came my way.

If you are in the wealth preservation stage, you have an asset allocation that includes bonds to smooth the ride. In this case, invest your lump sum according to your allocation and let that allocation mitigate the risk.

If you are just too nervous to follow this advice and the thought of the market dropping shortly after you invest your money will keep you up at night, go ahead and DCA. It won’t be the end of the world.

But it will also mean that you’ve adjusted your investing to your psychology rather than the other way around.

Addendum:

Most people are effectively using DCA as they contribute to their tax-advantaged accounts such as 401Ks during the year. But if the disadvantages to DCA described here resonate with you, our friend The Mad Fientist offers a strategy to eliminate it: Front Loading. As you’ll read, there are other advantages to this approach beyond avoiding DCA.

Above is a picture of Jack Bogle, the founder of Vanguard, the creator of the modern low-cost index fund and my personal hero. If you aspire to be wealthy and financially independent, he should be yours as well.

Before Mr. Bogle the financial industry was set up almost exclusively to enrich those selling financial products at the expense of the customers. It mostly still is.

Then Mr. Bogle came along and exposed industry stock-picking and advice as worthless at best, harmful at worst and always an expensive drag on the growth of your wealth. Not surprisingly, Wall Street howled in protest and vilified him relentlessly.

Mr. Bogle responded by creating the first S&P 500 index fund. The wails and gnashing of teeth continued even as Bogle’s new fund went on to prove his theories in the real world:

The best performance over time is achieved by buying and holding all stocks in a low-cost index fund. Stock picking, and the actively managed funds that employ it, are fated to fall behind, dragged down even further by their higher fees. So rare is the active manager who can actually outperform over time, the few that do become famous house-hold names: Buffett, Lynch, Price.

As the years rolled on and the evidence piled ever higher, Mr. Bogle’s critics began to soften their voices; mostly I’d guess because they had begun to sound pretty silly. Other fund companies, realizing that their customers were becoming ever less willing to accept high fees for questionable performance, even began to offer their own index funds in an effort to keep them from walking out the door. Personally I’ve never believed their hearts were in it, and for that reason my money stays at Vanguard.

Almost everyday now I get an email or a comment on this blog thanking me for the investing information I provide, especially in the Stock Series. I’m deeply honored by this and such messages are deeply motivating. But everything here has it’s roots in the work Mr. Bogle has done and it is he who has provided the essential tools we need to most efficiently and quickly reach financial independence. If I’ve provided a flickering candle to light the way, his work has been a white-hot sun.

So, if you are one of the many readers who have written to me in thanks, or if you haven’t but have felt you’ve found benefit here, I ask you to join me in making possible a honor that my personal hero and our collective financial saint, Mr. Bogle, truly deserves:

The fact that Mr. Bogle is being considered for this honor was recently brought to my attention by my pal Gouri, who I met and got to know at this year’s Chautauqua.* If you want to join in this effort, Gouri’s email to me below tells you how:

As you probably know, Boglehead leaders submitted a letter nominating Bogle for the Presidential Medal of Freedom, one of the highest civilian honors:

Executive Office of the President
The White House
ATTN: Executive Clerk’s Office
Washington, DC 20502

Thank you, Gouri, for bringing this to my attention and thank you in advance to those of you who chose to help. I gather that the decision will be made in the next 30 days or so, so if you are going to do it, please do it now.

The truth is, my guess is that the unpretentious, clear-minded, straight shooting Jack Bogle doesn’t give a rat’s ass about receiving this award. If you click on the link below his photo above you’ll see the list of those he’s already received is extensive. But he deserves it nonetheless and his receiving it will send an important message to an industry that sorely needs to hear it and, perhaps, to those investors yet to see the light.

*Speaking of the Chautauqua, this seems a good place to share with you an advance notice that the next will be held February 7-14, 2015. I’ll be formally announcing it sometime later this month, but most of the details are already up on the Above the Clouds website. We plan for this one to be even smaller and more intimate than the last: 15 or 20 people.

We’ll have two new speakers and I’ll get to escape a bit of the NH winter. Depending on where you live, maybe you too!